Top 50 – Banks hold key to insolvency

Unfortunately, we don’t know how much its involvement with Leeds United helped Ernst & Young’s insolvency income because, in common with most Big Four firms, figures for the sector are wrapped up with those for corporate finance.

KPMG, the only one to release distinct figures, saw a 12% drop in income down to £102m. By contrast, KPMG showed the biggest growth of the Big Four in corporate finance revenues, suggesting that insolvency fees may have watered down the combined figures of the others.

One problem for the Big Four is a growing reluctance by banks and financial institutions to hand out insolvency work to their own auditors, which might help explain the situation if the largest firms had taken a hit.

Overall, though, the insolvency market appears to be healthy, with most of the Top 50 firms for which figures are available showing growth in revenue.

It seems likely that soaring personal insolvency had much to do with this. Bankruptcies have shot up from 30,587 in 2002 to 36,328 last year.

That is just as well for firms, as company insolvencies fell from 16,305 in 2002 to just 14,184 last year as the economy picked up. That trend appears to be continuing, with a 14.5% decrease from the first quarter of 2003 compared to the corresponding three months of this year.

Little wonder that Gareth Hughes, president of R3, has said that the sector ‘could be entering quieter times’.

Significantly, only two of this year’s top 10 growers were top 10 firms, suggesting that smaller outfits are taking a bigger slice of the market.

The nine-year-old DTE Leonard Curtis, for example, showed the most startling growth, up 86%. That built on last year’s 31% growth to make it the twelfth highest earning firm for insolvency in this year’s Top 50.

Last year’s top dog, Deloitte, turned 2003’s income of £199.3m into £219m this year, but only after it added corporate finance to the figure. Its involvement in what was probably the most high-profile insolvency of the year – that of the bus maker, Mayflower – cannot have hurt.

PricewaterhouseCoopers and Ernst & Young reported combined corporate finance/insolvency figures of £253m and £203.2m, up 2% and 17% respectively.

Outside the Big Four, Grant Thornton, Baker Tilly and BDO Stoy Hayward led the way with fee income of £44m, £22m and £20m respectively.

Grant Thornton hit the headlines in April after the Inland Revenue mounted an unsuccessful challenge to the firm’s handling of the administration of Wimbledon FC, while Baker Tilly has been well placed to profit from growing personal insolvency, landing high-profile cases including troubled TV entertainer Michael Barrymore.

As for the future, the latest figures from BDO’s Industry Watch report suggests that, barring serious external shocks, the outlook for business failures is set to improve ‘immensely’ through 2004 and 2005, with only 33,500 businesses expected to fail in the period as corporate profits recover. How that will effect insolvency income remains to be seen.

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